Legal Information Centre


19 September 2008 by Jennifer Kelly

Employment solicitors explain what to do if your employer becomes insolvent

The economic crisis has seen thousands of companies go insolvent. But what should you do when it happens. Our employment solicitors set out the rules.

The  collapses of a number of  businesses during this long running economic crisis serve as a reminder for Britain's workforce of the uncertainty created by the present economic downturn. The prospect of similar cases arising makes it worthwhile understanding how an employment solicitor can help you should your employer become insolvent.


Initial implications


Naturally it is alarming to hear that the company you work for has become insolvent and the initial aftermath is a highly uncertain period for employees. The good news, according to employment solicitor Andy Knorpel, of ASB Law, is that although administrators cannot guarantee any jobs, your employer's insolvency does not necessarily mean you are out of work.


When workers at Lehman Brothers were informed that their employer was insolvent, there was uncertainty about whether they had all lost their jobs. Many gradually found out over the course of the first day. Dan Schwarzmann, one of Lehman's administrators, told the Times that some subsidiaries would continue to trade while they were up for sale. He suggested: "Some of those people will want to continue in the employment of the company for many months to come. For others, their tenure will be shorter than that."


Whatever your situation, employment solicitor Rachel Blythe of Simpson Millar advises employees to seek legal advice as early as possible. Law firms often provide a free consultation or sometimes run a helpline where it is possible to find out about your situation. Blythe also points out the speed can be a factor as there are time constraints on applications. Employment tribunals, for instance, have a deadline of between three and six months.


The Lucky Ones


Knorpel emphasises that ultimately, whether to stay with the company or leave is a personal decision and you will have to make a judgement on how likely you are to continue holding your position. He suggests that if you are in such a position it is worthwhile searching for a new job so that you are prepared if you are made redundant.


Helen Moore, an employment solicitor at Tayntons LLP, agrees that employees should look elsewhere. Her advice is to "carrying on working for as long you’re going to be paid" but warns that "it is very rare that a company can recover."


As long as you continue working for the company you are still entitled to your usual pay and if you are not the usual channel of the employment tribunal is still available. However, Moore warns that it is rarely worth pursuing such action - also in the case of unfair dismissal and discrimination - since an insolvent employer is unlikely to be able to pay out.


If you are made redundant


As remaining with your employer does not affect your statutory rights neither does being made redundant mean you are not entitled to redundancy pay. Ms. Blythe suggests that you can receive this through a written application but if not then you can again turn to an employment tribunal.


What you are entitled to and how to claim it


Employment solicitors say the insolvency administrator should distribute information and application forms for claiming any money owed with Ms Moore claiming that the process is usually straightforward.


In insolvency there are certain payments owed to employees that are treated as preferential debt. This means that when your employer is paying back debts you will be prioritised over a number of other creditors. If your employer cannot afford to fully pay even these preferential debts then they can be claimed from the Redundancy Payments Office.


Payments classified as preferential debt include:



  • arrears of pay

  • holiday pay

  • occupational pension scheme payments

  • redundancy pay

  • notice pay


However, there are caps to the amount that can be claimed. The size of all payments is dictated by a weekly wage that is capped at £330. Wages can be claimed for up to eight weeks and holiday pay up to six weeks. You are only eligible for redundancy pay if you have worked for the employer for at least two years continuously.


Any payments owed in excess of these basic minimums counts as lower ranking debt, putting you in a similar position to other creditors. This means you will be paid from any remaining funds the administrators can salvage but you may be unable to fully recover the money owed.


Moore suggests that beyond the minimum payments it is unlikely that employees will receive anything and advises against pursuing additional money. She warns of situations when an employer " has purposely gone insolvent and set up elsewhere." In such a case employees should consult a solicitor as they may able to pursue any additional payments owed.


Application forms for the Redundancy Payments Office can be found by clicking here.


Glossary


INSOLVENCY


Definition:


If your employer is insolvent this means they do not have all the money to pay the people they owe. The process involves making special arrangement to meet payments.


Also known as:



  • 'Bankruptcy' (if your employer is an individual)

  • 'Going into administration'


THE ADMINISTRATOR


Definition:


The organisation appointed to arrange your employer's finances. In the case of Lehman Brothers this was PricewaterhouseCoopers.


Also known as:



  • 'Insolvency practitioner'

  • 'Liquidator'

  • 'Receiver'


Click here to read 'What to do when consulting an employment solicitor'





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